Taxpayer is liable to pay penal interest on advance tax if he has failed to pay any advance tax or the advance tax paid is less than 90& of the assessed tax.

The more you delay paying your taxes, the more the interest will keep increasing.

While the deadline of July 31 for filing income tax return (ITR) has been extended by a month, tax payers should remember that the dates for paying tax - specifically advance tax - for FY17-18 have not been extended. Even though no penal interest applies on self-assessment tax till the deadline of filing ITR, taxpayers will have to pay penal interest on shortfall of advance tax payment. It continues to apply at 1 percent a month starting from the date it originally became payable.

If there is shortfall in your advance tax payments then delay in paying the full amount (which has to be done before filing your return for the relevant FY) just because the deadline for filing return has been extended is not wise because penal interest meter continues ticking. Penal interest on shortfall in advance tax is payable at 1 percent under section 234B and also under Section 234C, separately, depending on the amount of shortfall in advance tax and dates by which it was not paid as required.

Taxpayers are required to make advance tax payments if their total tax liability (including income from other sources and so on) in a financial year is more than Rs 10,000. However, most salaried people believe that they don't have to pay it since tax is already deducted at source from their salaries. As a salaried taxpayer, you can be liable to pay advance tax if you have not reported other sources of income such as interest income to your employer.

Under section 234B of the Income Tax Act, there are two scenarios for which a taxpayer can be liable to pay penal interest on advance tax. These are as follows:
a) When the taxpayer has failed to pay any advance tax though he is liable to pay it, or,
b) When the advance tax paid by you is less than 90 per cent of the assessed tax.

Normally, the assessed tax is equivalent to your total tax liability minus TDS cut by the deductor.

Abhishek Soni, CEO, tax2win.in, a tax-filing company says, "Most of taxpayers believe that once they have made the required payment of advance taxes and TDS is already being deducted from their income, they need not worry as any shortfall can be paid later by the way of self-assessment taxes at the time of filing ITR. But they forget that in case their advance tax payment is less than 90% of their assessed tax liability, then they will be liable to pay interest on the shortfall."

Interest on the shortfall of advance tax paymentIn case of a shortfall on the advance tax payment, the penal interest will be levied at a rate of 1 per cent per month or part thereof and is calculated as simple interest.

Penal interest is levied from the start the of the assessment year, i.e., April 1 till the date of actual payment of taxes. Assessment year is the year immediately followed by the financial year for which taxes are to be paid and ITR has to be filed.

Demand for unpaid interest on taxes can also be raised by the department at the time of processing your ITR. If the tax calculations made by you does not match with that of the department, then they can send you a demand notice to pay the unpaid interest. In such a case, these are calculated from April 1 to the date of assessment, adds Soni.

How it is calculatedSuppose your total tax liability during the FY 2017-18 is Rs 2 lakh. Out of which TDS of Rs 60,000 has been deducted and you have deposited advance tax of Rs 1 lakh during the year. And you are filing your ITR on July 15, 2018. Are you required to pay any penal interest?

Since there was a shortfall in the deposit as required, as a taxpayer you are liable to pay penal interest according to current income tax laws.
The more you delay paying your taxes, the more the interest will keep increasing. The interest will be calculated till the date of paying your taxes or date of assessment.

Interest under section 234CAdvance tax has to be paid in four instalments as shown in the table below. If specified minimum percentages of these instalments are not paid by the dates shown below then penal interest is leviable on the shortfall from the date it was due to be paid. This interest is also levied at the rate of 1% per month.
For first three instalments it is levied for a period of three months. For the fourth payment, it is levied for a period of one month.

Penal interest under both sections 234B and 234C can be applicable in case the advance tax payment is short in both cases.

What you should do As a taxpayer, you can avoid paying interest on the shortfall of advance taxes by ensuring that you have paid more than 90 per cent of the required amount before the end of the financial year, i.e., March 31. In case you have forgotten to make this payment, make sure you pay it as early as possible to avoid paying higher interest.